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Inheritance tax update: Good news for home owners

by Sherron Alexander-Bedingfield | Nov 22, 2016
  • The ability to pass on your home to your children has been a common wish for many homeowners. However, with the average price of a family home increasing year-on-year, the likelihood of this happening without inheritance tax implications has been an increasing concern.
    British cottage

    However, as of 6 April 2017, the main residence nil-rate band comes into effect. This should make it easier for most families to pass on the family home to direct descendants. In the months leading up to this date, it is prudent to review any existing will to ensure that it still reflects your wishes. You should also think about effective inheritance tax planning.

    At present, each individual has a nil-rate band allowance of £325,000. This level has remained frozen since 2010/11 and is likely to remain so until 2020/21. However, as of April 2017 an extra £100,000 allowance will be given to individuals in the form of the nil-rate band residence threshold. This will increase by £25,000 each tax year until it reaches £175,000 in 2020/21. Thereafter it will increase in line with the Consumer Price Index.

    However, all is not as simple as it appears. Readers should ensure that they seek professional advice and find out how, if at all, the nil-rate band residence threshold applies to them. Some of the main points to highlight are:

    • Relevant property
      Buy-to-let properties do not qualify. Your executor must show evidence that you have lived in the property at some point. This property does not have to have been your main residence.
    • Downsizing
      Homes sold/downsized post-July 2015 may still qualify for the nil-rate band residence threshold, provided you can show evidence of the funds.
    • Direct descendants
      The rules will only apply if the relevant home is being transferred to a direct/lineal descendant. So children and grandchildren can inherit, but not nieces, nephews or godchildren.
    • Property only
      The nil-rate band residence threshold only relates to property. So if you have assets that do not comprise of a relevant property then you will not have the additional allowance, only the standard nil-rate band of £325,000.
    • Estates worth more than £2 million net
      These estates will have the nil-rate band residence threshold withdrawn at a rate of £1 for every £2 over the threshold.

    In light of the above, now more than ever, a review of your existing will is needed.  For more information, visit our website, where you can find further details of all the services offered, including wealth management and inheritance tax planning.

    For wills-related advice please contact me at or call me on +44 (0) 20 7759 5531.

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